The Bank of England, Montagu Norman and the internationalisation of Anglo-Irish monetary relations, 1922–1943

Abstract

The granting of a £7,000m bilateral loan by the British government to the Republic of Ireland in October 2010 highlights the banking co-dependence of modern Anglo-Irish relations. This article provides a Bank-of-England-centred perspective on the development of Irish monetary institutions from the granting of Irish monetary independence in December 1921 to the establishment of the Central Bank of Ireland in 1943. Irrespective of unresolved Anglo-Irish political issues, the Bank of England's Irish policy during this period was based on a strict adherence to Montagu Norman's key central banking principles of co-operation, exclusiveness and political autonomy. This article identifies that the application of these principles survived both the coming to power of Fianna Fáil (Soldiers of Destiny) in Southern Ireland in 1932 and the outbreak of war in 1939. This article also argues that Norman's adherence to a wider internationalist view of monetary relations played an important role in forcing the overwhelmingly Protestant and pro-union Irish commercial banks, headed by the Bank of Ireland, to come to terms with the reality of Irish monetary independence. In this context, Norman's approach to Southern Ireland parallels the transition from Empire to Commonwealth, which began to emerge in the interwar period.

Political Economy of Secession: Lessons From the Early Years of the Irish Free State

“…Ireland had experience of fiscal administration through the offices of Dublin Castle during the Union (Hynes 2014). 32 While the IFS Department of Finance was structured along the lines of the UK Treasury (Fanning 1978), there existed no obvious template for how to operationalise monetary independence (Drea 2014, 2015). The League of Nations financial conferences in Brussels in 1920 and Genoa in 1922 had recommended that newly independent countries should establish Central Banks of issue (League of Nations 1920, p. 235; Federal Reserve 1922, p. 678).…”

“…34 The banking inquiry, chaired by the Columbia University Professor in banking Henry Parker-Willis, was only formally established in March 1926 but delivered its first report within 6 weeks owing to the urgency and importance of its brief (Moynihan 1975, p. 42). Parker-Willis was purposefully chosen both for his expertise in commercial and central banking, but also as a non-British expert (Drea 2014(Drea , 2015. The Irish Currency Commission was established following the recommendations of the Parker-Willis' commission, which was effectively a currency board.…”

A reappraisal of Joseph Brennan and the achievements of Irish banking and currency policy 1922–1943

“…He deliberately sought ‘able foreign financiers who had taken part in the monetary conferences under the auspices of the League of Nations in Brussels and at Genoa’ to take part in the Banking Commission of 1926 13 . Brennan's close relationship with Montagu Norman and other senior officials in the Bank of England resulted in the Irish being well informed on monetary developments in Europe (Drea 2014). Brennan, and the Irish administration generally, was also keen to publicly highlight Ireland's stability and relative economic success when compared to other smaller states in Europe 14 .…”

“…First, and as noted, Brennan was not ultra-conservative on central banking matters and considered the establishment of a central bank as early as 1924. Second, Jacobsson was a friend and confidante of both Montagu Norman and Niemeyer in the Bank of England and shared their vision for the development of central banking institutions in the emerging dominions of the British Commonwealth (Drea 2014, p. 71). Jacobsson correctly viewed Ireland as remaining part of the wider sterling area in the future and held that the actual credit control powers afforded to an Irish central bank were relatively unimportant as: The liquidity problem of the money and capital markets in the Saorstát (Irish Free State) presents no particular difficulties as the Irish banks have large sterling assets to draw on.…”